Buying a house

[ciphergoth]

I've decided to buy a house. Somewhere on the southern end of the Northern line, with two double bedrooms and gas central heating.

Flood me with advice!

For "house", read "living accommodation of some sort", by the way; in Edinburgh I'd write "flat" without thinking.

I was going to rent, so that spikeylady could get out of her Wimbledon place and to make sure we can live together happily before buying. But she is now moving in with ergotia and lilithmagna, so we're in no rush; and the mortgage payments would be something I could afford by myself if need be, so in the unlikely event that we can't live together happily it won't be a disaster. And it seems wisest to get out of paying rent to someone else and start paying it to myself as soon as possible. Plus it means we can choose our own fridge and suchlike - I really enjoyed that flexibility when we lived in Mir.

To forestall some advice:

• Yes, I'll go to a FIMBRA-regulated financial adviser
• Yes, I'll get a capital-and-interest repayment mortgage, not an endowment or interest-only

Comments

[babysimon]

I bought my flat in 2000 for 75k. I bought it from a woman who paid 65k for it in 1988. Bearing in mind the effects of inflation, she made a net loss. After twelve years, and after the JLE had been built within 200m of the front door.

During the early nineties that flat would have sold for around 30-40k. She couldn't have moved anywhere. And small flats are a bugger to sell at all when first time buyers can afford small houses.

Buying at the top of the market can hurt you financially for a *very* long time. And I believe we're at the top of the market now. I have a long rant on the subject, which I won't burden LJ with, but will happily tell you all about at the BU.

Rent for a year. Even if prices stay static it won't hurt you that much; if prices drop it could be the best decision you ever make.

[babysimon]

PS: I'm very much lookign forward to seeing you and spikeylady living together, of course!

[some-fox.livejournal.com]

Yey! I was waiting for this :-)
It does seem to make a great deal of sense to me
(and as someone who's likely to rent for a year or so and then want to buy I would like it to be true)

[jhg.livejournal.com]

Yeah. Can you join me for a chat with my bro (who floated the idea of buying a London property as investment and letting me live in it) if/when he comes over in the summer?


J

[narnee.livejournal.com]

I haven't ever bought property, but I've been doing research for years... still, take anything I say here with a grain of salt.

It's highly plausible that London (if not some other parts of the UK) are at the top of the market. The IMF has requested that the Bank of England increase the interests rates enough that they would cause a housing recession if not a housing crash. But buying property is always a calculated risk; someone who didn't buy four years ago because 'the market is going to crash soon' and who has been paying rent ever since -- say, £1000 a month, so £48,000 -- is probably kicking themselves now. As far as I understand it, one possible way to lower the risk of negative equity is to buy a property that needs a reasonable amount of refurbishment. The other benefit of that is if the housing prices don't go into recession or crash that when one sells up, the house value will incrase.

... But as I said, grain of salt. I could easily be talking out of my arse here.

[babysimon]

one possible way to lower the risk of negative equity is to buy a property that needs a reasonable amount of refurbishment

The rumour is that there are so many property development programmes on the TV right now that unrefurbished property sold at auction is actually going at a premium now. I blame Sarah Beeny.

[narnee.livejournal.com]

That's ludicrious. But then, with the exceptions of foreclosed and repossessed properties, I think buying at an auction is ridiculous anyway, as one can be caught in the competitiveness and pay far more than intended.

I hear that you've given Paul some advice which made him decide not to buy at this time. Would you be willing to share that with me as well (if I was to buy property I'd be a first-time buyer looking for livable accomodation that doubles as an investment) regarding London and letting me know if the same would be true in Scotland or the north of England? I totally understand if you don't have the time for that, but I thought I'd ask. Thanks.

[babysimon]

I only just saw this.

As far as I'm concerned, this applies to the whole country, particularly now that investors from the SE have bid prices up so much in the north.

This is my reasoning, for what it's worth:

• The property market is cyclical. Real (inflation-adjusted) prices go up, then down. This has been going on for decades, but used to be obscured by high inflation.
• Property is currently very expensive - the ratio of average price to average earnings is the highest it's ever been.
• Property is a fad investment - people who talk about investing in property now sound to me like people investing in internet companies in 1999.
• People are scared that if they don't buy now they'll never be able to afford it. The last time this fear surfaced was in 1988, just before the last crash. People bought nasty flats in cheap locations because they were scared. Then negative equity happened and they were stuck there for years.
  

Reasons people say the housing market won't crash:

• There's a housing shortage. No there isn't - there's a shortage of affordable housing to buy. This is just another way of saying that house prices are very high. There's plenty to rent, and it's cheaper now than it was five years ago.
• Interest rates are low now, making monthly payments affordable. Yes, kinda, but rates are already rising slowly. Interest rates are currently low as an emergency measure to stave off a global recession. This will not be the case for the next 25 years. Or indeed the next two years, once Dubya has succeeded / failed at getting re-elected priorities will change.

OK, I've typed too much. Stopping now.

[narnee.livejournal.com]

Very, very interesting. I believe I will be pondering that for some time to come. Thanks so much for spending the time to respond.

One more question -- in your estimation, when you do believe will be the right time to buy again? Obviously you wouldn't be able to give me an exact timespan; what I mean is whether you think the conditions will be good again in one year, two years, five years, etc.

Thanks again! :>

[babysimon]

when you do believe will be the right time to buy again

Pick one of:

* When you can afford the property you want to live in, or

* When the accepted wisdom is that you'd be crazy to do so - don't you know how many people are in negative equity?

The first point is probably still on the downward slope but hopefully you won't care.

The second point is probably the bottom of the market.

[bootpunk.livejournal.com]

> The IMF has requested that the Bank of England increase the interests rates

I'm sorry that I'm jumping in to the thread very late, but I just had to point out that the IMF has said nothing of the sort. The IMF has broadly praised the UK economic performance, whilst expressing worries about the housing market amongst other things, but those worries are hardly going to prompt them to call for a rise in interest rates that would create the very housing market crash they caution about. The report in question (The Annual Article IV Consultation) is available here or there is a brief summary from the Beeb here.

One thing that the IMF and other international bodies have been saying very publicly is that the global housing market looks like it is in a bubble - this announcement was made in the last 3-4 weeks, I'd link to the Economist story but you need to be subbed. The UK is looking a lot better than countries such as Australia taken in a wider context. A global housing market retrenchment could be a shock to the system, tho' not on the dot-com scale.

Fwiw I'm split between looking now and waiting a year. I'd probably wait, as altho' I don't expect house prices to crash in London I don't expect them to soar either. I do expect some harsh readjustments outside of London, one of the big ones likely being Edinurgh.